Chain of Productions and Channels of
Distribution
We will look at:
• Revision of Chain of Production
• Samples of Chain of Production
• Primary/Secondary/Tertiary Activities
• Channels of Distribution and samples
• Wholesalers/Retailers
Questions to consider
• Definition of Chain of Production/ Channels of Distribution
• List out sample chains and channels
• Differentiate Primary/Secondary/Tertiary Activities
• Explain wholesalers/ retailers/ cash and carry
Chain of Production
Taken from Economics chapter
Production means combining these
resources to produce goods/services
that customers want
Chain of Production and Channels of
Distribution
Think about the steps involved in providing consumers with the
following:
1. Baker selling bread.
2. A kitchen table and chairs.
3. Cakes.
The Chain of Production
• The chain of production refers to the various production or
processing stages that a good or service goes through before it is sold.
For Bread: 1. Wheat-2. Millers for flour-3.
Baker-4. Transport-5. Customer
The Three Sectors of the Economy
From this we can identify 3 distinct sectors involved in the
manufacturing and distribution of products.
• The Primary Sector (Raw Materials from land/sea)
• The Secondary Sector (Manufacturing/ Construction)
• The Tertiary Sector (Services Providers)
The Primary Sector
• Primary producers take materials from the land or sea or use the land
or sea to make a product.
• The main industries involved in primary production are:
• Agriculture
• Forestry
• Fishing
• Mining
• Oil Production.
Secondary Producers
• These manufacture and process the raw materials supplied by the
primary producers.
• Some examples would be:
•
•
•
•
The Building Industry
Technological and Pharmaceutical Firms
Food Processing
Clothing
Tertiary Producers
• They do not make the products. Instead they supply services that
businesses need to operate successfully.
• Examples include:
•
•
•
•
Insurance
Banking
Doctors
Solicitors
Exercise: List the following into three columns to show which are
primary, which are secondary, and which are tertiary
Insurance Companies
Bakeries
Agriculture
Doctors
Packaging Firms
Forestry
Furniture Firms
Clothing Firms
Banks
Oil producers
Pharmaceutical Firms
Advertising Industries
Mining
Fishing
Solicitors
Primary
Secondary
Tertiary
The Channels of Distribution
Channels of distribution are the methods used to transfer finished goods from
manufacturers to consumers.
Common examples are:
1 Manufacturer
wholesaler
2 Manufacturer
3 Manufacturer
retailer
consumer
retailer
consumer
consumer
R. Delaney
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Examples of Channels of Distribution
Tailor Made Prodcuts
Producer
Consumer
Books
Producer
Manufacturer
Retailer
Consumer
Wholesaling
• A wholesaler is a company or person that buys large quantities of
goods from many manufacturers and sells them in smaller quantities
to retailers. E.G. A school may need large stocks of paper, which it
purchases directly through the wholesaler in order to receive a
discount
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Cash and Carry Wholesalers
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•
1.
2.
3.
4.
5.
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Cash and carry wholesalers act as supermarkets
to retailers. Consumers are not permitted to
shop in them. E.g. Musgraves.
They differ from the traditional wholesaler
because:
They do not give credit.
They do not deliver goods.
They operate on a self-service basis.
They provide ample parking space for retailers.
Their prices tend to be lower than traditional
wholesalers.
R. Delaney
Functions of a retailer
•
1.
2.
3.
4.
5.
6.
7.
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A retailer is somebody (or an outlet) who sells finished
goods to consumers. E.g.Tesco, Johnny Ryan’s, Elvery’s.
•
Functions of a retailer:
Provides a wide range of goods to consumers in one place
Sells goods to consumers in small quantities
Offers advice to consumers on products they may need
Informs manufacturers of changing consumer trends
Creates a demand for goods by advertising
Arranges finance for consumers for expensive goods
May accept “trade-ins” to make it easier for consumers to
buy new goods
R. Delaney
Wholesaler aids retailer
Role played by wholesaler
Benefit to retailer
Provides a wide range of goods
Retailers need deal with only a
small number of wholesalers
rather than many manufacturers
Sells goods in small quantities
Retailers do not have to store
large quantities of goods
Delivers goods
Reduces retailer’s transport costs
and saves retailer’s time
Provides credit facilities
Retailers may be able to sell all
their stock before payment is due
Provides information about new
products coming onto the market
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Prevents retailers over-stocking
goods that may be going out of
fashion
R. Delaney
Wholesaler aids manufacturer
Role played by wholesaler
Benefit to manufacturer
Buys very large quantities
Manufacturers have a small
number of customers, which
reduces their overhead costs
Stores the goods
Manufacturers are saved the
warehousing costs
Promotes the goods to retailers
and consumers
Reduces the manufacturer’s
advertising costs
Pays promptly for goods
Gives the manufacturer working
capital for current expenditure
Provides the manufacturer with
information from retailers
regarding consumer trends
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Prevents the manufacturers from
making goods that may be going
out of fashion
R. Delaney
List a possible channel of distribution for the
following
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•
•
•
Cereal
A Tailored Suit
Tickets to see a gig in the O2
New Audi